Grupo Aeroméxico, S.A.B. de C.V. – Further to “Court House Steps” Settlements, Mexico’s Largest Airline Has Plan of Reorganization Approved

February 4, 2022 – The Court hearing the Grupo Aeroméxico cases issued an order confirming the Debtors’ Fourth Revised Plan of Reorganization [Docket No. 2668].

Also on February 4th, the Debtors filed (i) their Fourth Revised Plan of Reorganization and a related blackline showing changes to the version filed on December 10, 2021 [Docket No. 2664, ie the solicitation version] and (ii) a Fourth Plan Supplement [Docket No. 2669 which attached, inter alia, a revised list detailing Board and management composition and the "EBITDAR-Linked Instruments Term Sheet"]. On December 5th, the Debtors subsequently filed a Fifth Plan Supplement which attached a revised EBITDAR-Linked Instruments Term Sheet [Docket No. 2676].

The Debtors, who announced that their Plan had been confirmed in principle by Judge Shelley C. Chapman following a hearing that stretched across January 27th and 28th, have spent the intervening week tweaking the details of "court house steps" settlement agreements reached with (i) their official committee of unsecured creditors (the "Commitee" and "Committee Settlement," respectively) and (ii) Invictus Global Management, LLC (“Invictus”), together with the "Ad Hoc Group of OpCo Creditors" (the “OpCo Creditor/Invictus Settlement”) . The Committee Settlement will see up to $40.0mn distributed to creditors in classes 3(c) and 3(d) across 5 years based on the performance of the emerged Debtors, with details of the distribution memorialized in the EBITDAR-Linked Instruments Term Sheet attached to the Fifth Plan Supplement and otherwise detailed further below. 

Pursuant to the OpCo Creditor/Invictus Settlement, in addition to otherwise benefitting from the terms of the Committee Settlement, Invictus is to receive a $1.1mn cash payment and have up to $880k of fees covered.

Plan Overview

On June 30, 2020. Grupo Aeroméxico, S.A.B. de C.V. and three affiliated Debtors (BMV: AEROMEX; “Aeroméxico” or the “Debtors,” the holding company for Mexico’s largest airline and 51.3% owned by Delta Airlines, Inc.) filed for Chapter 11 with estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $1.0bn and $10.0bn (funded debt of almost $2.1bn, see chart below). 

Aeroméxico was the third Latin American airline to file for Chapter 11 protection in a short span, with Colombia’s flag carrier Avianca Holdings SA filing for chapter 11 on May 10th (NYSD: 20-11133) and Chile’s Latam Airlines Group SA following suit two weeks later (NYSD: 20-11254). In each case, the debtors cited the near complete cessation of activities resulting from the COVID-19 pandemic as the catalyst for the Chapter 11 filings. Also true, however, was that each airline arrived at Chapter 11 with similar pre-existing conditions: fleet and debt structures that were unsustainable…with Chapter 11 offering a solution to this “too many planes” problem through the rejection of onerous contractual relationships and the enhanced negotiating strength that accompanies that ability to reject.

The centerpiece of the Debtors' Plan is exit financing that provides the emerged Debtors with $720.0mn of new equity capital through the issuance of new equity and up to $762.5mn of new debt capital through the issuance of senior secured first-lien notes. Proceeds of the financing will be used, inter alia, to (i) fund a cash payment of $450.0mn for unsecured creditors, (ii) repay the Debtors' debtor-in-possession ("DIP") facility and (iii) finance the purchase of Aeroméxico’s loyalty program.

[NB: the below descriptions pre-date the Committee Settlement and the OpCo Creditor/Invictus Settlement, although those settlements do not impact the Plan's key components]

The Debtors filed a memorandum of law in support of confirmation on January 24, 2022 [Docket No. 2552] which provides: "The Plan represents the culmination of the Debtors’ restructuring and is the product of more than 18-months of extensive good-faith, arm’s-length negotiations (including through Court-ordered Mediation) with a broad array of parties. It accomplishes a laudatory achievement for a large complex cross-border case — acceptance by every Plan Class that was entitled to vote on the Plan.

In total, Holders of over $2.35 billion of Claims voted to accept the Plan – which represents 87.45% of the total dollar amount of all votes tabulated on the Plan. The Plan also has the committed support of the Debtors’ most critical stakeholders, including Apollo, Delta, the Ad Hoc Group of Senior Noteholders, the BSPO Investors, the Ad Hoc Group of Unsecured Claimholders and the Mexican Investors (collectively, the 'Alliance').

The Debtors commenced the Chapter 11 Cases in the throes of the ongoing pandemic that dealt an unprecedented blow to the Debtors’ business and the entire global aviation industry. Remarkably, the Debtors now stand before the Court seeking confirmation of a consensual Plan that positions the Company for long-term success. The foundation of this Plan is the Court-approved exit financing facility provided by the Alliance (the 'Alliance Proposal'), which will enable the Debtors to (a) preserve approximately 13,000 jobs, (b) appropriately capitalize and deleverage the Company, (c) broaden and deepen the Company’s strategic and economic relationships, (d) ensure long-term Mexican ownership from a group of professional investors that satisfies both the legal and political requirements for operating Mexico’s flagship carrier, (e) facilitate sound corporate governance and (f) maximize the value of the Debtors’ Estates which, in turn, enhances recoveries.

Of the approximately 56,231 parties who received notice of the Plan and Confirmation Hearing pursuant to the Solicitation and Voting Procedures, only the Creditors’ Committee, Invictus and the OpCo Creditors (together, the 'Objectors') have filed objections (the 'Objections') to the Plan that remain unresolved. In particular, the Creditors’ Committee seems more focused on the parochial issues of certain of its individual members and not on the broad support the Plan enjoys among the constituency that it has duties to represent. Notably, 60% of the total amount of claims that rejected the Plan (and 96.7% of the amount of all rejecting claims at Aeroliteral) were cast by a single member of the Creditors’ Committee.

Much of the Objections (including the entirety of the Invictus Objection) are based upon the faulty assumption that the Plan would need to be crammed down on some Class of creditors. The balance of the Objections are either regurgitations of arguments already considered and rejected in this case by the Court, or nothing more than last-ditch attempts to advance legal positions that have no basis in fact or law. Rather than maximizing the value of the Debtors’ Estates by expeditiously exiting bankruptcy, the Objectors are wasting valuable resources — including judicial resources — trying to undo the outcome of the vote on the Plan.

Notwithstanding the Objections, the Plan satisfies the applicable provisions of section 1129 of the Bankruptcy Code and is in the best interests of the Debtors’ Estates and their economic stakeholders. Accordingly, for the reasons set forth herein, the Debtors respectfully request that the Bankruptcy Court confirm the Plan and enter the Confirmation Order." (See more background on objections below).

The Disclosure Statement [Docket No. 2294] provides the following overview: “As part of the restructuring:

• The Debtors performed a robust market-check to determine the value of the Reorganized Debtors. As a result, the Debtors received multiple exit financing proposals from various creditors, groups of creditors and third-party investors. In fact, the Debtors and their advisors spent the past several months negotiating with the various exit financing proponents, the Creditors’ Committee, Delta and certain Mexican Investors so that the Debtors could emerge from these Chapter 11 Cases positioned for long-term success, while also maximizing recoveries for all creditors.
• The Board of Directors authorized the Company to proceed with the Apollo-Creditor Exit Financing Proposal (as defined below) based on the advice from all of its restructuring advisors, as it contemplates the greatest recovery to the Debtors’ creditors, has the broadest creditor support and, importantly, is fully implementable.
• As more fully explained in Article IV below, the Apollo-Creditor Exit Financing Proposal will provide the Reorganized Debtors with $720 million of new equity capital through the issuance of new equity and up to $762.5 million of new debt capital through the issuance of senior secured first lien notes. The Apollo-Creditor Exit Financing Proposal is the best available source of liquidity for the Debtors to repay the Tranche 1 DIP Loan and any portion of the Tranche 2 DIP Loan that is not converting into reorganized equity, convert the already invested Tranche 2 DIP Loan into reorganized equity, maximize creditor recoveries, sustain ongoing operations and emerge successfully from chapter 11 with sufficient capital.
• The proceeds of the Equity Financing and Debt Financing (collectively, the ‘Exit Financing’) will be used to, among other things, (i) repay the Tranche 1 DIP Facility, (ii) fund a $150 million cash payment to Apollo to, in part, discharge Tranche 2 DIP Facility Claims, (iii) fund a cash payment of $450 million to unsecured creditors, and (iv) finance the PLM Stock Participation Transaction, if consummated.
• As discussed in greater detail below, the Plan authorizes (but does not require the Debtors to consummate) the PLM Stock Participation Transaction, pursuant to which PLM would become a wholly-owned subsidiary of Grupo Aeroméxico. In addition, the Plan provides for the Debtors’ assumption of the Club Premier Agreements. If the Company elects to consummate the PLM Stock Participation Transaction, the Exit Financing provides $375 million in financing to fund such transaction.
• Holders of General Unsecured Claims are entitled to vote and receive, depending on the Debtor or Debtors against whom such Holder has a Claim or Claims, New Stock or Cash (or in certain circumstances a combination thereof) under the Plan. If confirmed and consummated, the Plan will provide Holders of:
  1. Aerovías and Grupo Aeroméxico Recourse Claims against Aerovías and Grupo Aeroméxico an aggregate recovery of 100%
  2. General Unsecured Claims against Grupo Aeroméxico a projected recovery of between approximately 84% to 85%;
  3. General Unsecured Claims against Aerovías with a projected recovery of between approximately 16% to 15%;
  4. General Unsecured Claims against Aeroméxico Connect with a projected recovery of between approximately 3% to 3%; and
  5. General Unsecured Claims against Aeroméxico Cargo with a projected recovery of 17% – 16%.
• Holders of Unsecured Convenience Class Claims are entitled to vote and receive, depending on the Debtor or Debtors against whom such Holder has a Claim or Claims, Cash under the Plan. If confirmed and consummated, the Plan will provide Holders of:
  1. Unsecured Convenience Class Claims against Grupo Aeroméxico a projected recovery of between 100%;
  2. Unsecured Convenience Class Claims against Aerovías a projected recovery of between approximately 30% to 29%;
  3. Unsecured Convenience Class Claims against Aeroméxico Connect a projected recovery of between approximately 30% to 29%;
  4. Unsecured Convenience Class Claims against Aeroméxico Cargo a projected recovery of between approximately 30% to 29%.
• Aeroméxico has been able to leverage the chapter 11 process to effectively transform its businesses and simplify its balance sheet. As contemplated by the Plan, the Company will eliminate approximately $1.1 billion of debt from the Debtors’ consolidated balance sheet. At the same time, as a result of its reorganization Grupo Aeroméxico has improved the customer experience and expects to emerge from bankruptcy as a strong, competitive and global airline that continues to connect Mexico with the world. In particular, Aeroméxico expects to be the airline of choice for business and leisure customers by offering a best-inclass customer experience on the ground and in the air. Aeroméxico expects to remain focused on maintaining the competitive cost structure it has obtained through its reorganization in order to improve its financial position and pursue long-term stability and growth.”

The following is an amended summary of classes, claims, voting rights and expected recoveries (changes in blue bold and defined terms are as defined in the Plan and/or Disclosure Statement, see also the Liquidation Analysis below):

• Class 1 (“Secured Claims against the Debtors”) is unimpaired, presumed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $635.0mn – $656.0mn and expected recovery is 100%.
• Class 2 (“Other Priority Claims against the Debtors”) is unimpaired, presumed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $200k – $1.0mn and expected recovery is 100%.
• Class 3(a) (“Aerovías and Grupo Aeroméxico Recourse Claims”) is impaired and entitled to vote on the Plan. Estimated claims are $685.6.0mn – $686.0mn and estimated recovery is 100%-100%. Each Holder of an Allowed Aerovías and Grupo Aeroméxico Recourse claim shall receive, at its option, either its Pro Rata share of (i) each of the Grupo Aeroméxico New Stock Allocation and the Aerovías New Stock Allocation or (ii) the Aerovías/Grupo Claimholder Cash Pool; provided that if the elections made by holders of Class 3(a) Claims would result in (x) less than the full amount of the Aerovías/Grupo Claimholder Cash Pool being distributed, such remaining amount (the “Remaining Cash Pool”) shall be allocated to Classes 3(b), 3(c), 3(d) and 3(e) based upon the same allocation of New Stock to such Classes and correspondingly reduce the amount of New Stock to be received by the Holders of Allowed Claims in such Classes in an amount equal to such portion of the Remaining Cash Pool allocated to such Classes, and such New Stock instead shall be distributed to the Holders of Allowed Class 3(a) Claims that elect to receive New Stock so as to effectuate the last sentence of this paragraph or (y) more than the full amount of the Aerovías/Grupo Claimholder Cash Pool being distributed, such elections shall be reduced Pro Rata and each Holder of an Allowed Class 3(a) Claim shall receive additional New Stock in lieu of such reduced amount received from the Aerovías/Grupo Claimholder Cash Pool]. [The aggregate value of the consideration to be received by Holders of Allowed Class 3(a) Claims will be in an amount equal to the full amounts due and owing on account of such Claims as of the Petition Date, including any accrued and unpaid interest as of the Petition Date, but excluding any interest accruing after the Petition Date].
• Class 3(b) (“General Unsecured Claims against Grupo Aeroméxico”) is impaired and entitled to vote on the Plan. Estimated claims are $95.0mn – $100.0mn and estimated recovery is 84% – 85%. Each Holder of an Allowed General Unsecured Claim against Grupo Aeroméxico shall receive its Pro Rata share of the Grupo Aeroméxico New Stock Allocation, and, if applicable, its Pro Rata Share of the Remaining Cash Pool allocated to Class 3(b); provided, that cash received from the Remaining Cash Pool will correspondingly reduce the amount of New Stock to be received.].
• Class 3(c) (“General Unsecured Claims against Aerovías”) is impaired and entitled to vote on the Plan. Estimated claims are $1.719bn – $1.939bn and estimated recovery is 16% – 15%. Each Holder of a Class 3(c) Claim shall receive its Pro Rata share of (i) the Remaining Cash Pool, (ii) the Aerovías New Stock Allocation (after accounting for distributions to Holders of Class 3(a) Claims), (iii) the Class 3(c) EBITDAR-Linked Instruments Distribution and (iv) the Preemptive Rights True Up allocated to Class 3(c); provided, that Cash received from the Preemptive Rights True Up, if any, will correspondingly reduce the amount of New Stock to be received
• Class 3(d) (“General Unsecured Claims against Aeroméxico Connect”) is impaired and entitled to vote on the Plan. Estimated claims are $419.0mn – $457.0mn and estimated recovery is 3% – 3%. Each Holder of a Class 3(d) Claim shall receive its Pro Rata share of (i) the Remaining Cash Pool, (ii) the Aeroméxico Connect New Stock Allocation and, (iii) the Class 3(d) EBITDAR-Linked Instruments Distribution and (iv) the Preemptive Rights True Up allocated to Class 3(d); provided that Cash received from the Preemptive Rights True Up, if any, will correspondingly reduce the amount of New Stock to be received. 
• Class 3(e) (“General Unsecured Claims against Aeroméxico Cargo”) is impaired and entitled to vote on the Plan. Estimated claims are $1.2mn – $1.5mn and estimated recovery is 17% – 16%. Each Holder of a General Unsecured Claim against Aeroméxico Cargo shall receive its Pro Rata share of the Aeroméxico Cargo New Stock Allocation and, if applicable, its Pro Rata Share of the Remaining Cash Pool allocated to Class 3(e); provided, that cash received from the Remaining Cash Pool will correspondingly reduce the amount of New Stock to be received.
• Class 4(a) (“Unsecured Convenience Class Claims against Grupo Aeroméxico”). is unimpaired, presumed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $100.0K – $200.0K and expected recovery is 100%.
• Class 4(b) (“Unsecured Convenience Class Claims against Aerovías”) is impaired and entitled to vote on the Plan. Estimated claims are $42.2mn – $43.4mn and estimated recovery is 30% – 29% [30-29 is how this appears in the Disclosure Statement].
• Class 4(c) (“Unsecured Convenience Class Claims against Aeroméxico Connect”) is impaired and entitled to vote on the Plan. Estimated claims are $6.1mn – $6.5mn and estimated recovery is 30% – 29%.
• Class 4(d) (“Unsecured Convenience Class Claims against Aeroméxico Cargo”). is impaired and entitled to vote on the Plan. Estimated claims are $1.6mn – $1.9mn and estimated recovery is 30% – 29%.
• Class 5 (“Customer Claims against the Debtors”) is unimpaired, presumed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $3.5mn – $8.1mn and expected recovery is 100%.
• Class 6(a) (“Intercompany Claims against Grupo Aeroméxico”) is unimpaired/impaired, presumed to accept or reject and not entitled to vote on the Plan. The aggregate amount of claims is $15K and expected recovery is 0% – 100%.
• Class (6b) (“Intercompany Claims against Aerovías”) is unimpaired/impaired, presumed to accept or reject and not entitled to vote on the Plan. The aggregate amount of claims is $299K and expected recovery is 0% – 100%.
• Class 6(c) (“Intercompany Claims against Aeroméxico Connect”) is unimpaired/impaired, presumed to accept or reject and not entitled to vote on the Plan. The aggregate amount of claims is $646K and expected recovery is 0% – 100%. 
• Class 6(d) (“Intercompany Claims against Aeroméxico Cargo”) is unimpaired/impaired, presumed to accept or reject and not entitled to vote on the Plan. The aggregate amount of claims is $10.0K and expected recovery is 0% – 100%.
• Class 7 (“Intercompany Interests”) is unimpaired, presumed to accept and not entitled to vote on the Plan. The aggregate amount of claims is N/A and expected recovery is N/A.
• Class 8 (“Interests in Grupo Aeroméxico”) is impaired, deemed to reject and not entitled to vote on the Plan. Estimated claims are N/A and estimated recovery is 0%.

Voting Results

On January 11, 2022, the Debtors’ claims agent notified the Court of the Plan voting results [Docket No. 2464], which were as follows [NB: Invictus subsequently changed its votes in respect of Class 3(e), where it agreed to vote in favor, but not Class 3(c) or 3(d) where it continued to vote against]:

• Class 3(a) (“Aerovías and Grupo Aeroméxico Recourse Claims”): 96 claim holders, representing $603,814,000.00 (or 98.86%) in amount and 98.97% in number, accepted the Plan. 1 claim holders, representing $6,965,000.00 (or 1.14%) in amount and 1.03% in number, rejected the Plan.
• Class 3(b) (“General Unsecured Claims Against Grupo Aeroméxico”): 22 claim holders, representing $61,605,856.04 in amount (or 100%) and 100% in number, voted in favor of the Plan.
• Class 3(c) (“General Unsecured Claims Against Aerovías”): 93 claim holders, representing $1,425,790,789.80 (or 83.65%) in amount and 80.87% in number, accepted the Plan. 22 claim holders, representing $278,727,562.66 (or 16.35%) in amount and 19.13% in number, rejected the Plan.
• Class 3(d) (“General Unsecured Claims Against Aeroméxico Connect”): 20 claim holders, representing $204,334,789.83 (or 67.75%) in amount and 62.50% in number, accepted the Plan. 12 claim holders, representing $97,248,263.67 (or 32.25%) in amount and 37.5% in number, rejected the Plan.
• Class 3(e) (“General Unsecured Claims Against Aeroméxico Cargo”): 3 claim holders, representing $1,110,000.00 (or 100%) in amount and 100% in number, rejected the Plan.
• Class 4(b) (“Unsecured Convenience Class Claims Against Aerovías”): 105 claim holders, representing $6,445,938.53 (or 87.18%) in amount and 86.07% in number, accepted the Plan. 17 claim holders, representing $947,861.84 (or 12.82%) in amount and 13.93% in number, rejected the Plan.
• Class 4(c) (“Unsecured Convenience Class Claims Against Aeroméxico Connect”): 29 claim holders, representing $933,939.40 (or 86.22%) in amount and 85.29% in number, accepted the Plan. 5 claim holders, representing $149,288.40 (or 13.78%) in amount and 14.71% in number, rejected the Plan.
• Class 4(d) (“Unsecured Convenience Class Claims Against Aeroméxico Cargo”): 5 claim holders, representing $74,022.93 (or 80.04%) in amount and 83.33% in number, accepted the Plan. 1 claim holder, representing $18,457.59 (or 19.96%) in amount and 16.67% in number, rejected the Plan.

Key Terms of Committee Settlement and EBITDAR Term Sheet

• EBITDAR-Linked Instruments, which shall be issued pursuant to an EBITDAR-Linked Contingent Value Rights Agreement (“Instrument Agreement”). For the avoidance of doubt, the issuance of the EBITDAR-Linked Instruments shall not reduce the Plan Equity Value (as defined in the Plan) or otherwise impact the
  equity price for purposes of distribution to any Equity Finance Commitment Party (as defined in the Plan).
• The total amount of EBITDAR-Linked Instruments offered shall not exceed an aggregate original face value of US$40 million to be issued on the Effective Date of the Plan.
  • The total amount of EBITDAR-Linked Instruments issued shall be allocated amongst Qualifying Holders as follows:
    Qualifying Holders that hold claims classified in Class 3(c) under the Plan shall receive their pro rata share, based upon the amount of each Qualifying Holder’s respective claim relative to the total amount of claims classified in Class 3(c) under the Plan, of 25% of the total dollar amount of EBITDAR-Linked Instruments issued pursuant to the terms hereunder.
  • Qualifying Holders that hold claims classified in Class 3(d) under the Plan shall receive their pro rata share, based upon the amount of each Qualifying Holder’s respective claim relative to the total amount of claims classified in Class 3(d) under the Plan, of 75% of the total dollar amount of EBITDAR-Linked Instruments issued pursuant to the terms hereunder.
• For each fiscal year ending December 31, 2022, 2023, 2024 and 2025, respectively, each Qualifying Holder of EBITDAR-Linked Instruments will be entitled to receive a cash payment in US Dollars on each Distribution Date equal to its Respective Percentage of the EBITDAR-Linked Instrument Pool Amount for such fiscal year (a “Distribution”), provided that for each fiscal year the Distribution for a Qualifying Holder shall be capped at the amount of such Qualifying Holder’s Respective Percentage of the Maximum Value Payment. All amounts payable hereunder shall be without gross up for any withholding.
• “Maximum Value Payment” means, with respect to each of the following fiscal years, a maximum payment for all EBITDAR-Linked Instruments corresponding to such fiscal year as indicated in the table below, and in any event, not to exceed US$40 million in the aggregate (in each case, proportionately decreased for any prepayments or other cancellations): 

• “EBITDAR-Linked Instrument Pool Amount” means, for each fiscal year ending December 31, 2022, 2023, 2024 and 2025, respectively, an amount equal to: (A) 50% multiplied by (B) the excess, if any, of (i) the realized annual consolidated EBITDAR of Grupo Aeromexico for such fiscal year minus (ii) the amount equal to the Business Plan Annual EBITDAR for such fiscal year; provided that the EBITDAR-Linked Instrument Pool Amount shall not exceed the Maximum Value Payment with respect to any fiscal year, and shall not exceed US$40 million in the aggregate (proportionately decreased for any prepayments or other cancellations).
• “Business Plan Annual EBITDAR” means, with respect to each applicable fiscal year, EBITDAR for such fiscal year set forth in the Company’s Agreed Business Plan of July 2021, which for the avoidance of doubt, means, with respect to each of the following fiscal years, EBITDAR corresponding to such fiscal year as indicated in the table below: 

Key Documents

The Disclosure Statement [Docket No. 2294] attached the following documents:

• Appendix A: Plan of Reorganization 
• Appendix B: Liquidation Analysis 
• Appendix C: Financial Projections 
• Appendix D: Valuation Analysis 
• Appendix E: Organizational Chart

The Debtors filed Plan Supplements at Docket Nos. 2369, 2483, 2589, 2669 and 2676 which attached the following documents

Docket No. 2369 filed on December 29, 2021

• Exhibit A: Notice of Assumption of Executory Contracts & Unexpired Leases (Including Assumption Schedule)
• Exhibit B: Notice of Rejection of Executory Contracts & Unexpired Leases (Including Rejection Schedule)
• Exhibit C: Schedule of Retained Causes of Action
• Exhibit D: Form of New Notes Indenture
• Exhibit E: List of Directors and Officers of the Reorganized Debtor
• Exhibit F: Form of Registration Rights Agreement
• Exhibit G: Form of Subscription Agreement
• Exhibit H: Proposed Grupo Aeroméxico Bylaw Amendments
• Exhibit I: Form of Management Services Agreement

Docket No. 2483 filed on January 14, 2022:

• Exhibit A: Revised Schedule of Executory Contracts & Unexpired Leases to be Assumed or Assumed and Assigned and Proposed Cure Amounts 
• Exhibit A-1: Blackline (Changed Pages Only) of Revised Schedule of Executory Contracts & Unexpired Leases to be Assumed or Assumed and Assigned and Proposed Cure Amounts Against December 28 Version
• Exhibit B: Revised Schedule of Executory Contracts & Unexpired Leases to be Rejected
• Exhibit B-1: Blackline (Changed Pages Only) of Revised Schedule of Executory Contracts & Unexpired Leases to be Rejected Against December 28 Version

 Docket No. 2589 filed on January 27, 2022:

• Exhibit A: Revised Schedule of Executory Contracts & Unexpired Leases to be Assumed or Assumed and Assigned and Proposed Cure Amounts
• Exhibit A-1: Blackline of Revised Schedule of Executory Contracts & Unexpired Leases to be Assumed or Assumed and Assigned and Proposed Cure Amounts Against January 14 Version 
• Exhibit B: Revised Schedule of Executory Contracts & Unexpired Leases to be Rejected
• Exhibit B-1: Blackline of Revised Schedule of Executory Contracts & Unexpired Leases to be Rejected Against January 14 Version

Docket No. 2669 filed on February 4, 2022:

• Exhibit A Identities of Members of the Reorganized Grupo Aeroméxico Board of Directors and the Executive Management of Reorganized Grupo Aeroméxico (“Revised D&O Exhibit”)
• Exhibit A-1 Blackline of Revised D&O Exhibit Against December 28 Version
• Exhibit B Revised Schedule of Executory Contracts & Unexpired Leases to be Assumed or Assumed and Assigned and Proposed Cure Amounts
• Exhibit B-1 Blackline of Revised Schedule of Executory Contracts & Unexpired Leases to be Assumed or Assumed and Assigned and Proposed Cure Amounts Against January 26, 2022 Version
• Exhibit C Revised Schedule of Executory Contracts & Unexpired Leases to be Rejected
• Exhibit C-1 Blackline of Revised Schedule of Executory Contracts & Unexpired Leases to be Rejected Against January 26, 2022 Version
• Exhibit D EBITDAR-Linked Instruments Term Sheet

Docket No. 2676 filed on February 5, 2022:

• Exhibit A EBITDAR-Linked Instruments Term Sheet (“Revised Term Sheet”)
• Exhibit A-1 Blackline of Revised Term Sheet Against February 4 Version

Alliance Proposal

On November 11th (U.S. press release dated the 12th), Aeroméxico announced that it had: “received a joint proposal (the ‘Alliance Proposal’) from its lenders under Tranche 2 of our DIP financing facility [i.e., Apollo] and from certain existing creditors and new money investors with whom the Company was prepared to enter into commitment papers upon court approval thereof. The Alliance Proposal has the support of our strategic partner Delta Air Lines and provides an implementable solution, through a solid group of long-term Mexican investors, to comply with foreign ownership requirements.  The Board of Directors of the Company has approved, among other matters, instructing the Company’s restructuring advisors to prepare, in coordination with advisors for the key stakeholders, a revised version of the Chapter 11 Joint Plan of Reorganization (the ‘Plan’) and the disclosure statement with respect to the Plan (the ‘Disclosure Statement’), including any supplements and exhibits related thereto, reflecting the terms of the Alliance Proposal.”

As proposed, the Plan would leave the “Equity Financing Commitment Parties,” Apollo, Delta and the Mexican Investors with 26.9%, 22.38%, 20.0% and 4.1%, respectively, of the emerged Debtors new common stock. The Equity Financing Commitment Parties (i.e., Delta, the BSPO Investors, the Noteholder Investors, the Claimholder Investors, the Mexican Investors and any parties to the Debtors’ “Equity Financing Commitment Letter”) are in line for a 15% “Equity Commitment Premium” based on their contributions to the $720.0mn of equity financing. Apollo is also in line for “(i) $150 million in cash and (ii) accrued interest under the DIP Credit Agreement at the Applicable Margin (as defined in the DP Credit Agreement) of 14.5% on the outstanding obligations to Apollo under the Tranche 2 DIP Facility commencing December 31, 2021 through the Effective Date, payable in Cash.”

The Debtors’ aspirations for the amended Plan (and its proposed exit financing) are somewhat complicated by the November 26th filing [Docket No. 2178] of an objection to that exit financing by an ad hoc group of OpCo creditors (the “Ad Hoc Group,” comprised of Invictus Global Management, LLC, Corvid Peak Capital Management LLC, Hain Capital Group, LLC and Livello Capital Management LP and holding in aggregate an estimated $131.0mn of debt [Docket No. 2179]) which argues that its own alternative exit financing proposal “provides a consensual path towards exiting chapter 11 while at the same time distributing value fairly across the capital structure, including to fulcrum general unsecured claims holders (‘GUC Holders’) and increasing plan value by $450 million…[and] leaves unaltered the negotiated economic rights of certain key parties (Delta, Apollo, and significant Mexican shareholders) and provides markedly improved recoveries for the fulcrum class of GUC Holders — i.e., increasing the recovery range from 14-14.5% to up to 29-31%.” The objection attaches a comparison chart and the November 21st alternative exit term sheet that the Ad Hoc Group shared, without result, with the Debtors.

Exit Financing Outcome 

The Disclosure Statement now provides: “After many months of tireless negotiations, on November 11, 2021, the Debtors received a joint proposal from Apollo, certain members of the Ad Hoc Group of Senior Noteholders and the BSPO Investors. Further, on November 19, 2021, the Debtors filed the Supplement to Debtors’ Exit Financing Motion and Notice of Filing of Revised Equity and Debt Commitment Letters [ECF No. 2168] (the ‘Revised Exit Financing Documents’), which provides for exit financing (the ‘Apollo-Creditor Exit Financing Proposal’) from certain members of the Ad Hoc Group of Senior Noteholders, the BSPO Investors, Apollo, certain members of the Unsecured Claimholders Group, certain other holders of unsecured claims, the Mexican Investors and Delta. The Debtors’ Board of Directors elected to proceed with the Apollo-Creditor Exit Financing Proposal as the basis for the Plan since it is executable, provides robust creditor recoveries and ensures the highest likelihood of a timely exit from bankruptcy. Broadly, the Apollo-Creditor Exit Financing Proposal will provide for, among other things, the following:

• Electing Tranche 2 DIP Lenders will convert their Tranche 2 DIP Facility Claims into New Stock. 
• The DIP Credit Agreement Amendment that, among other things, permits the proposed restructuring on the terms set forth in the Term Sheet annexed to the Equity Financing Commitment Letter and amends the Milestones (as defined in the DIP Credit Agreement) under the DIP Credit Agreement to the extent necessary to comply with the timeline as set forth in the Term Sheet. 
• New equity commitments of $720 million of new equity (the ‘Equity Commitments’).
• The Equity Financing Commitment Parties (other than Delta and the Mexican Investors), Apollo, Delta and the Mexican Investors shall receive 26.9%, 22.38%, 20.0% and 4.1%, respectively, of the New Stock on the Effective Date (in each case subject to the Specified Dilution).
• New debt commitments to purchase New First Lien Notes in the aggregate principal amount of up to $762.5 million (the ‘Exit Debt Commitments’); provided, however, that certain Debt Financing Commitment Parties and/or other third party investors may provide alternative exit debt financing in lieu of the Exit Debt Commitments contemplated by the Debt Financing Commitment Letter through a syndication expected to be arranged by JPMorgan on terms reasonably satisfactory to the Debtors, the Required Equity Commitments Parties, Delta and Apollo (such exit financing, if applicable, the ‘Alternative Exit Debt Financing’) [NB: References to the possible alternative exit financing ultimately removed from the Plan]. 
• In connection with the commitment to purchase the New First Lien Notes, the Debt Financing Commitment Parties are entitled to a commitment premium (the ‘Debt Commitment Premium’ and, together with the Equity Commitment Premium, the ‘Commitment Premiums and Fees’) payable to such Debt Financing Commitment Parties in cash, equal, in the aggregate to 1.0% of the Exit Debt Commitments. Further, the Debtors are responsible for the payment in cash of all reasonable fees and reasonable documented out-of-pocket expenses of the Debt Financing Commitment Parties and their professionals, in each case as set forth in the Debt Financing Commitment Letter (the ‘Debt Commitment Party Expense Reimbursement’). Finally, the Debt Financing Commitment Letter contains certain customary indemnification provisions.
• The payment of certain fees and expenses as set forth in the Debt Financing Commitment Letter and the Equity Financing Commitment Letter as approved by, and on terms set forth in, the Exit Financing Commitment Order.
• Apollo shall receive on the Effective Date, in addition to its allocation of New Stock, (i) $150 million in cash and (ii) accrued interest under the DIP Credit Agreement at the Applicable Margin (as defined in the DP Credit Agreement) of 14.5% on the outstanding obligations to Apollo under the Tranche 2 DIP Facility commencing December 31, 2021 through the Effective Date, payable in Cash.
• Finally, the Equity Financing Commitment Letter and Subscription Agreement contain certain customary indemnification provisions.

The Apollo-Creditor Exit Financing Proposal also provides that the Equity Financing Commitment Parties will receive, in aggregate, 15.0% of the Committed Equity Amount, payable in New Stock on the Effective Date (the ‘Equity Commitment Premium’) in exchange for their Equity Commitments.”

Background on Objections

Previously on January 19, 2022, the Ad Hoc Group of OpCo Creditors (see table below for membership) and the Debtors’ Official Committee of Unsecured Creditors (the “Committee”) eparately objected to the Debtors’ Plan of Reorganization [Docket Nos. 2491 and 2493, respectively].

The objections are largely similar, with each creditor group claiming that a Plan that they were once willing to support has slipped into the realm of unconfirmability after changes which see shareholding insiders (including Delta Airlines and certain prepetition Mexican shareholders) fattened at the expense of unsecured creditors in what the creditors groups allege is a clear violation of the absolute priority rule. Given the influence of “unchecked, powerful insiders,” the creditor groups urge the Court to apply a heightened standard of review is assessing the Plan.

Paraphrasing the Ad Hoc Group of OpCo Creditors, their objection is largely summarized as: “…when a debtor is dominated by conflicted insiders who are incentivized to pursue impermissible ends that are contrary to the purposes of the Bankruptcy Code, the last line of defense is the Bankruptcy Code itself. To ensure that general unsecured creditors are treated fairly and equitably in this case, the Court must enforce the Bankruptcy Code’s protections and safeguards by denying confirmation of the proposed Plan.”

The Committee concurs, arguing in its objection that: “…the Committee continues to oppose the Plan due to several significant infirmities—most notably, the improper and inequitable distribution of value to insiders—that impermissibly depress the recoveries of certain general unsecured creditors.”

Each group tries to take the edge off of their objection (as the Plan confirmation nears) by arguing that simple (albeit fundamental) fixes exist that would not require resolicitation of the Plan (and a lengthy extension of the Debtors’ stay in bankruptcy). The Ad Hoc Group of OpCo Creditors notes that the Plan “can easily be modified to comply with the Bankruptcy Code by striking impermissible distributions to prepetition equity holders, re-allocating the resulting value, and providing equal opportunity for recovery to all general unsecured creditors.” 

For its part, the Committee argues: “…the Plan as currently constructed is not confirmable, but with certain modifications could be resuscitated and supported by the Committee without the need to resolicit. The Plan is the product of a flawed process whereby the Debtors abdicated their fiduciary duties and allowed a group of sophisticated creditors to negotiate directly with the Debtors’ insider prepetition shareholders….if shareholders want to maintain equity interests under the Plan, they must contribute market value.”

As of November 24, 2021, the Ad Hoc Group of OpCo Creditors was composed of the following entities, with notes as to the below table available at Docket No. 2179.

Events Leading to the Chapter 11 Filings

The Disclosure Statement reads: “Prior to the COVID-19 pandemic, the Debtors were well-capitalized and positioned for success. In short, the singular reason the Debtors sought chapter 11 relief was to mitigate the effects of the pandemic.

The Effects of the COVID-19 Pandemic on the Travel Industry

Entering 2020, Aeroméxico was the leading airline in Mexico and sufficiently capitalized to continue its operational initiatives and take advantage of its strategic partnerships. However, due to worldwide travel restrictions and a collapse in consumer demand due to the COVID-19 pandemic, the airline industry generally and Aeroméxico specifically were suddenly faced with ‘the most disruptive financial crisis in the history of aviation.’ Shortly after the World Health Organization declared the outbreak of the novel COVID-19 virus a global pandemic, countries around the world, including each of those in which Aeroméxico primarily operates, announced severe travel restrictions and/or outright closure of their borders—restrictions that continue in some capacity or another to today. And upon borders closing and air travel drying up almost completely, airlines started seeking governmental bail-outs or court-supervised restructuring processes to avoid liquidation. Aeroméxico’s experience during the pandemic is a microcosm of what has happened in the airline industry more broadly.

The COVID-19 crisis’ impact on travel restrictions and thereby airline demand was almost instantaneous. Almost overnight, by April 15, 2020, Mexican domestic capacity was reduced by as much as 75% and international capacity was reduced as much as 90%. As of the Petition Date, Aeroméxico’s passenger flight operations were drastically limited to approximately 12% of the number of flights operated before the COVID-19 crisis. Moreover, at the beginning of the crisis, Argentina, Brazil, Colombia, Chile, and Canada each closed their borders to international travel and there were severe restrictions on travel for non-nationals to Schengen countries and Japan. Each of these countries and regions is an important market for the Company, and with the travel restrictions in place demand was almost entirely eliminated overnight. And as intra- and intercountry shutdowns remained in place across the globe, demand for Aeroméxico flights remained severely depressed.

The Response to the COVID-19 Pandemic

Pre-pandemic, Aeroméxico’s balance sheet was strong and it reflected Aeroméxico’s position in the marketplace and the results of its employees’ hard work. Moreover, over recent years, Aeroméxico had reinvested all of its profits back into the Company to acquire its own aircraft and easily satisfy its financial obligations. Even still, this was not enough to mitigate the effects of the COVID-19 crisis, so the Company had to take additional steps to protect itself while continuing to serve its customers, employees, and other stakeholders. As the crisis unfolded, the Company promptly implemented a range of mitigation measures, including to: (a) stop incurring costs considered not absolutely necessary for the running of the Company’s business; (b) postpone all non-critical expenses for its operations and capital goods; (c) engage with supplier, aircraft lessors, and airport groups to obtain various payment concessions; and (d) consensual salary reductions and a voluntary unpaid leave program.

In addition, with these efforts, Aeroméxico retained Davis Polk & Wardwell LLP as legal counsel, AlixPartners, LLP to provide management support and strategic advice, Rothschild & Co and SkyWorks Capital, LLC to provide financial advice, and Cervantes Sainz, S.C. (subsequently substituted for Sainz Abogados, S.C.), as local Mexican counsel to help the Company plan the most responsible path through and ultimately out of the COVID-19 crisis. Notwithstanding, as the pandemic continued to hamper demand, the Company’s liquidity position continued to deteriorate significantly. Therefore, in order to, among other things, prevent the exercise of self-help and other remedies against the Debtors’ assets, including with regard to its leased aircraft, the Company decided that filing these Chapter 11 Cases provided the best option for obtaining the necessary funding to sustain operations and preventing any avoidable disruption for the Company’s vendors and customers.”

Prepetition Debt

An overview of the Debtors’ funded indebtedness as of the Petition date is as follows:

Liquidation Analysis (see Appendix B to the Disclosure Statement for notes)

About the Debtors

According to the Debtors: "Grupo Aeromexico, S.A.B. de C.V. is a holding company whose subsidiaries are engaged in commercial aviation in Mexico and the promotion of passenger loyalty programs. Aeromexico, Mexico’s global airline has its main hub at Terminal 2 at the Mexico City International Airport. Its destinations network features the United States, Canada, Central America, South America, Asia and Europe. The Group's operating fleet of 119 aircraft is comprised of Boeing 787 and 737 jet airliners and Embraer 170 and 190 models. Aeromexico is a founding member of the SkyTeam airline alliance, which celebrated its 20th anniversary, and serves in 170 countries by the 19 SkyTeam airline partners. Aeromexico created and implemented a Health and Sanitization Management System (HSMS) to protect its customers and employees at all steps of its operations." 

Corporate Steucture (see Appendix E of Disclosure Statement)

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